Insurance: Just Part of the Financial Sector? [25]

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Bullet points include: Natural framework is Modigliani-Miller, rather how it doesn’t apply in practice: Debt interest deductibility. Should affect banks more than insurers, as banks rely more on debt financing and Basel III more focused on raising capital and improving its quality. Information asymmetry (and moral hazard). Should affect (some) insurers more, as Solvency II a more fundamental change (and greater cost for insurers to unwind undesired positions?). Also change in value apportionment. Impact of leverage on shareholder value. Should affect banks more. TBTF/SIFI and implicit deposit protection underpin. Should affect (large) banks more, if Basel III successfully reduces funding subsidy

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